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1、Chapter 19 Financial Statement Analysis Multiple Choice Questions1.A firm has a higher quick (or acid test) ratio than the industry average, which implies. A)the firm has a higher P/E ratio than other firms in the industry. B)the firm is more likely to avoid insolvency in short run than other firms
2、in the industry. C)the firm may be less profitable than other firms in the industry. D)A and B. E)B and C. Answer: E Difficulty: Easy Rationale: Current assets earn less than fixed assets; thus, a firm with a relatively high level of current assets may be less profitable than other firms. However, i
3、ts high level of current assets makes it more liquid.2.An example of a liquidity ratio is _. A)fixed asset turnover B)current ratio C)acid test or quick ratio D)A and C E)B and C Answer: E Difficulty: Easy Rationale: Both B and C are measures of liquidity; A relates to fixed assets.3._ a snapshot of
4、 the financial condition of the firm at a particular time. A)The balance sheet provides B)The income statement provides C)The statement of cash flows provides D)All of the above provide E)None of the above provides Answer: A Difficulty: Easy Rationale: The balance sheet is statement of assets, liabi
5、lities, and equity at one point in time.4._ of the cash flow generated by the firms operations, investments and financial activities. A)The balance sheet is a report B)The income statement is a report C)The statement of cash flows is a report D)the auditors statement of financial condition E)None of
6、 the above is a report Answer: C Difficulty: Easy Rationale: Only statement C is correct; the balance sheet reports assets, liabilities, and equity at a point in time; the income statement is a summary of earnings over a period of time.5.A firm has a higher asset turnover ratio than the industry ave
7、rage, which implies A)the firm has a higher P/E ratio than other firms in the industry. B)the firm is more likely to avoid insolvency in the short run than other firms in the industry. C)the firm is more profitable than other firms in the industry. D)the firm is utilizing assets more efficiently tha
8、n other firms in the industry. E)the firm has higher spending on new fixed assets than other firms in the industry. Answer: D Difficulty: Easy Rationale: The higher the asset turnover ratio the more efficiently the firm is using assets.6.If you wish to compute economic earnings and are trying to dec
9、ide how to account for inventory, _. A)FIFO is better than LIFO B)LIFO is better than FIFO C)FIFO and LIFO are equally good D)FIFO and LIFO are equally bad E)none of the above Answer: B Difficulty: Easy Rationale: LIFO reflects the current cost of goods sold, and thus is a better determinant of econ
10、omic earnings.7._ of the profitability of the firm over a period of time such as a year. A)The balance sheet is a summary B)The income statement is a summary C)That statement of cash flows is a summary D)The audit report is a summary E)None of the above is a summary Answer: B Difficulty: Easy Ration
11、ale: The income statement summarizes revenues and expenses over a period of time.8.Given the results of the study by Clayman, you would _the stocks of firms with high ROEs and _ the stocks of firms with low ROEs. A)want to buy, want to buy B)want to buy, not want to buy C)not want to buy, want to bu
12、y D)not want to buy, not want to buy E)be unable to buy, want to buy Answer: C Difficulty: Moderate Rationale: Clayman found that investing in firms with high ROEs produced results inferior to those obtained by investing in stocks with lower ROEs.9.Over a period of thirty-odd years in managing inves
13、tment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately _. A)5% B)10% C)15% D)20% E)none of the above Answer: D Difficulty: Moderate Ra
14、tionale: Although Graham said in 1976 that markets were so efficient that one could not expect to identify undervalued securities consistently as he had done throughout his career, he continued to find this one variable useful.10.A study by Speidell and Bavishi (1992) found that when accounting stat
15、ements of foreign firms were restated on a common accounting basis, A)the original and restated P/E ratios were quite similar. B)the original and restated P/E ratios varied considerably. C)most variation was explained by tax differences. D)most firms were consistent in their treatment of goodwill. E)none of the above. Answer: B Difficulty: Moderate
